otis, haryott - how low should you go - a method to calibrate estimates of p99 prospect reserves...

How Low Should You Go? A Method to Calibrate Estimates

of P99 Prospect Reserves

Robert Otis

Paul Haryott

www.roseassoc.com

Acknowledgement

Thanks to Chevron Corporation for use of data in the development

of this presentation

Background Prospect reserve and many reserve

parameter distributions are lognormal

Data from a lognormal distribution plot as a straight line on log-probability graph paper

Probit scale

Log scale


parameter distributions are lognormalMid-point is the P50;slope is proportional to standard deviation

Probability scale is greater than convention P10 is a large number; P90 is a small number


parameter distributions are lognormalVolatility or uncertainty is another term from standard deviation (or variance) and can be expressed most easily as the P10/P90 ratio

Volatility or uncertainty is another term for variance (or standard deviation) but is most easily quantified by the P10/P90 ratio

The larger the P10/P90, the more uncertainty or the higher the variance (standard deviation) of the distribution


parameter distributions are lognormal

A straight line is defined by two points thus, any lognormal distribution can be completely defined with two independent pieces of information, e.g., mean and variance, P10 and P90, P01 and P10/P90, etc.

Pre-Post Drill Discovery Sizes

Norwegian Petroleum Directorate, 1997

1

10

100

1,000

10,000

1 10 100 1,000 10,0001

10

100

1,000

10,000

1 10 100 1,000 10,000

8th To 14th Licensing RoundsNorwegian North Sea

Expected Size before Licensing, MMBOE

S

i

z

e

o

f

D

i

s

c

o

v

e

r

y

,

M

M

B

O

E

Observations The P01 (high side) of most distributions is

fairly well constrained Field size distributions can use the largest

field which is usually found early in the exploration phase

Area distributions can use the closing contour on structures and reservoir extent on stratigraphic traps

Average net pay distributions can use a high N/G and the thickest reservoir with an appropriate geometric correction or averaging

Observations Given a constrained upside or P01, we

can acknowledge a significant downside by several approaches Consider the smallest field in the trend and

force the distribution to honor both the extreme upside (P01) and the extreme downside (P99) connect with straight line

Assume an appropriate P10/P90 and pivot from the P01 do a credibility check on the estimated P99 and adjust as needed

Appropriate P10/P90? One guideline (from the mid 1980s)

suggests a range of values based on type of prospect and typical field size distributions Development 2 to 7 Extension 5 to 25 Trend 10 to 120 Rank 55 to 250 Frontier 120 to 650

Unfortunately, these values are not, for the most part, supported with published data

What We Want To Do And Why?

What Describe a method or process to calibrate

P10/P90 to appropriately represent the uncertainty of a distribution

Why Differing opinions are abundant, but are

mostly based on a wide variety of experience; few, if any, are validated with data

We would like to see a data supportedprocess that allows a company to develop their own rule(s) of thumb

Finding An Appropriate P10/P90

Because each company has a different portfolio, there are no hard rules each company will need to determine it independently

To do this, each company needs a history of consistent estimates of pre-drill distributions and post-drill actual results to use for calibration

If you have a history, apply the following process

The Process Compile your history wells require two

independent values to define the pre-drill distribution and the post drill mean

Estimate the P01 from each pre-drill distribution Assign a common P10/P90 to all wells and see

where the actual prospect result falls on each distribution

Evaluate results using a percentile histogram method from Otis and Schneidermann (1997)

Do this for several P10/90 ratios and see which one is most appropriate

Percentile Histograms

Each percentile interval has a 10% probability If the post-drill result from each pre-drill distribution

is random, the result is a uniform distribution

P05

P20P30P40

P60P70P80

P95

P01

P10

P50

P90

P991 10 100 1000

P05

P20P30P40

P60P70P80

P95

P01

P10

P50

P90

P991 10 100 1000

P05

P20P30P40

P60P70P80

P95

P01

P10

P50

P90

P991 10 100 1000

P05

P20P30P40

P60P70P80

P95

P01

P10

P50

P90

P991 10 100 1000

0

1

2

3

90-100 80-90 70-80 60-70 50-60 40-50 30-40 20-30 10-20 0-10

52 MMBOE in 50-60 Interval




0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-100%

10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-100%

10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

Diagnostics

Heavy on the downside too optimistic

Heavy on the upside too pessimistic

Heavy on both up - and downsides need to widen ranges Uniform distribution - acceptable

Lets Look at Some Data Chevron international exploration wells

from 1989-1993 (total of 50 discovery wells)

Prospects include trend, rank and frontier wells

No appraisal wells

P10/P90 For Years 1989 - 1993

02468

101214161820

Wells

P

1

0

/

P

9

0

R

a

t

i

o

1989 1990 1992 1993

Look Back

1991

Actual Post Drills - Pre-Lookback

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

Actual Post Drills - Post-Lookback

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

02468

101214161820

Wells

P

1

0

/

P

9

0

R

a

t

i

o

1989 1990 1991 1992 1993

Look Back

02468

101214161820

Wells

P

1

0

/

P

9

0

R

a

t

i

o

1989 1990 1991 1992 1993

Look Back

Percentile Histograms(1989-91) (1992-93)

Average P10/P90 = 3.7 Average P10/P90 = 7.8

Too many results below P90

Essentially balanced

About right on upside (P10)

Observations 1989-91 wells had average P10/P90 of ~4

but needed to include more downside 1992-93 wells had P10/P90 of ~8 and had

reasonably balanced results What would the histograms have looked

like if we used a variety of P10/P90s?

Range of P10/P90 ValuesWhat would these wells look like with a

P10/P90 = 7?P10/P90 = 10?P10/P90 = 20?P10/P90 = 50?P10/P90 = 100?P10/P90 = 250?

Post Drills w/7 P10/P90

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

Actual Post Drills

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

All WellsAverage P10/P90 Ratio = 7

Not bad - a nice balanced distribution Pre-drill, 31% of the wells were above P50 With P10/P90 = 7, 56% of the wells were

above P50


0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10


Although not bad, indications are that we are becoming pessimistic on the downside (P99 too low)

With P10/P90 = 10, 73% of the wells were above P50

Actual Post Drills

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10


0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

Worse than the original, and way too pessimistic of the downside (P99 way too low)

With P10/P90 = 20, 84% of the wells were above P50


Actual Post Drills

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

Point made . . . With P10/P90 = 50, 93% of the wells were

above P50


Actual Post Drills

0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10


0%10%20%30%40%50%

90-100

80-90

70-80

60-70

50-60

40-50

30-40

20-30

10-20

0-10

Observations For this data set, the process indicated

P10/P90 ratios for reserves vary between 5 and 10 Less than 5 too many results fall below P90 Greater than 10 too many results fall above P10

Quick Look process Check number of results above and below pre-drill

P50 Rule of Thumb: Greater than ~70% in either bin

check your process Let the process determine the appropriate

P10/P90 ratio for your company each portfolio is different and needs to be examined.

Observations The process should be applied to reserve

parameters as well (e.g., area, average net pay) to determine appropriate P10/P90 ratios For this data set, appropriate P10/P90 for area

ranged between 3 and 4 For this data set, appropriate P10/P90 for average

gross pay ranged between 6 and 8 however, a balanced histogram was reached only by allowing to P01 to be twice the original P01

Take-Aways Reserves and key, high variance reserve

parameters have consistent P10/P90 ratios capitalize on this observation

The high side is usually well constrained, and, together with an appropriate P10/P90 ratio, can define a very reasonable distribution as a credibility check

Use your P10/P90 ratios as QC and if aberrations are observed ask Why?

Appropriate P10/P90 ratios can only be determined by examining your company history and the basins explored of pre and post drill results maintain these religiously

So, How Low Should You Go? Low enough to have ~10% of your post

drill outcomes in the P100-P90 range of your pre-drill distributions

When data are available, high enough so that the distribution honors values in the 80% confidence interval (P90-P10)

This can be done by developing and using your companys appropriate P10/P90 as a calibration check

How Low Should You Go? A Method to Calibrate Estimates

of P99 Prospect Reserves

Robert Otis

Paul Haryott

www.roseassoc.com

Thank You For Your Attention

otis, haryott - how low should you go - a method to calibrate estimates of p99 prospect reserves...

Documents